If you’re planning on buying a house and you’re a veteran, active-duty service member, or military spouse, you may wonder if a VA loan is right for you. While VA loans offer impressive benefits for eligible borrowers, conventional loans may be a better fit depending on your financial situation and homebuying goals.
🏡VA loan vs. conventional loan: Which one to choose?
A VA loan is better if you:
- Are an eligible veteran, active-duty service member, or qualifying spouse
- Want to avoid paying private mortgage insurance (PMI)
- Want to buy a home with little or no money down
- Plan to use the mortgage for your primary residence
A conventional loan is better if you:
- Are not eligible for a VA loan
- Have excellent credit and a sizable down payment
- Are buying a second home or investment property
- Need a mortgage that exceeds VA loan limits
In this article, we’ll look at how VA loans and conventional loans compare to one another, what the pros and cons of each mortgage option are, and when it makes more sense to choose one over the other.
Comparing VA loan vs. conventional loan
| VA loan | Conventional loan | |
|---|---|---|
| Minimum down payment | 0% | 3% to 20% |
| Minimum credit score | Usually 620, but no official minimum | Usually 620 |
| Mortgage insurance | Not required | Required for down payments under 20% |
| Eligible properties | Primary residence only | Primary, investment, and secondary |
| Debt-to-income ratio | Up to 41% | Usually 36% to 50% |
| Loan limit | Varies by lender | $806,500 in most of the U.S. or higher in high-cost areas; jumbo loans are also available |
| Assumable | Yes, for qualified buyers | Typically no |
| Funding fee | 1.25% to 3.3% | None |
What are VA loans?
VA loans are mortgages that are backed by the U.S. Department of Veterans Affairs but issued by VA-approved private lenders. They’re designed to help veterans, active-duty service members, and their spouses achieve homeownership. Because they’re guaranteed by the federal government, lenders can offer buyers more favorable terms than would usually be the case with conventional loans.
VA loan eligibility requirements
To qualify for a VA loan, you must meet the following VA loan requirements:
- Military service requirement:
- 90 consecutive days of active service during wartime, OR
- 181 days of active service during peacetime, OR
- Six years of service in the National Guard or Reserves, OR
- Be the spouse of a service member who has died in the line of duty or because of a service-related disability
- Certificate of Eligibility (COE) from the VA (usually obtained by the lender on your behalf)
- Have a minimum two-year work history (with some exceptions)
- No minimum credit score, but 620+ is desirable
- Bank statements from the past two months
- Debt-to-income (DTI) ratio under 41% (can be higher with residual income)
- Loan is being used to purchase a primary residence
- Must meet VA minimum property requirements during appraisal
If your DTI ratio is above 41%, your residual income must exceed the acceptable limit by 20%. To see if you meet these requirements, use our VA residual income calculator.
What are conventional loans?
Conventional loans are mortgages issued by private lenders, such as banks and credit unions, that are not backed by the federal government. However, they usually have to meet guidelines set by Fannie Mae and Freddie Mac, which are government-sponsored. Conventional loans are the most common mortgage product for homebuyers.
Conventional loan requirements
To qualify, you’ll typically need to meet the following conventional loan requirements:
- Minimum down payment of 3% (although 20% avoids PMI)
- Credit score of 620+
- Debt-to-income ratio of 36% to 50%
- 2025 conforming loan limit of $806,500 (up to $1,209,750 in high-cost areas)[1]
- Proof of income and adequate savings
- Property appraisal
VA loans: pros and cons
Pros
- No down payment required
- No PMI for down payments under 20%
- More flexible credit/income requirements
- Assumable for qualified buyers
- No prepayment penalties
Cons
- Only available to veterans, military members, and qualifying spouses
- Can only be used for primary residences
- Appraisal requirements can be stricter than for conventional loans
- Loan limits vary by county and lender and may be lower than conventional loans
VA loans are attractive because they have no down payment requirements but still maintain competitive interest rates. That means they can help you buy a house much faster than you’d otherwise be able to with a conventional mortgage.
There are other items that VA loans can conveniently remove from your homebuying checklist. For example, there’s no insurance requirement, even for down payments under 20%, so you’ll save on your monthly mortgage payments. While you’ll get the best rates with a credit score over 620, lenders also tend to be more flexible with credit and income requirements with VA loans.
VA loans are also assumable for qualified buyers, which isn’t usually the case with conventional loans. An assumable loan is highly desirable when you decide to resell, especially if you locked in at a low interest rate.
The biggest drawback is that VA loans are only available to veterans, active-duty service members, and some military spouses. Plus, there are more restrictions on the type of property you can use a VA loan for. Only primary residences are eligible, and you’ll need to pass an appraisal that’s usually stricter than what you’d need to pass for a conventional loan.
Conventional loans: pros and cons
Pros
- Higher loan amounts, especially for jumbo loans
- Potentially lower interest rates for excellent credit
- Can be used for primary, secondary, and investment properties
- Can usually close faster due to fewer requirements
Cons
- Requires at least 3% down, 20% to avoid PMI
- Usually requires a higher credit score for the best rates
- PMI adds to monthly expenses for down payments under 20%
- Higher income and savings requirements
- Often higher interest rates for moderate credit scores or small down payments
Conventional loans provide more flexibility, especially if you have excellent credit and a large down payment. Either of those factors can enable you to get approved for a mortgage with a low interest rate or a high loan amount. Plus, you can get a conventional loan for a secondary or investment property, not just your primary residence.
Closing tends to also be faster with a conventional home loan, which is important given that concerns about time to close are among the most popular questions when buying a house. The appraisal for a conventional loan is mainly focused on market value, which means it tends to cause fewer issues and delays.
However, conventional loans will require a down payment. While 3% is the bare minimum, you’ll get better terms if you can put at least 10% down. A 20% down payment is ideal since it gets rid of the mandatory PMI that will otherwise add to your housing expenses.
If you don’t have excellent credit or a large down payment, you may struggle to get the best interest rates. Plus, lenders typically have stricter income requirements for conventional loans than they do for VA loans.
Should you choose a VA loan or conventional loan?
So long as you’re eligible, a VA loan is often a better option than a conventional loan, especially if you have limited savings or you’re struggling with making a down payment. For example, in high-cost areas where saving 20% for a conventional loan may take years, a VA loan provides an immediate path for buying a house.
If you’re expecting to move soon — which is often the case for active-duty military families — the fact that VA loans are assumable makes them extremely attractive. An assumable loan is highly sought after by many buyers, especially if it comes with low interest rates.
Despite all the advantages of VA loans, most buyers will end up with a conventional loan. Not only do eligibility requirements put VA loans out of reach for most buyers, but conventional loans can sometimes be a better option regardless. For example, if you have an excellent credit score and can save a down payment of 20%, then you’ll likely be able to get a great interest rate and terms with a conventional mortgage.
Conventional loans also present fewer potential obstacles at closing, particularly when it comes to passing the appraisal. Because closing delays are less likely, some sellers may feel more reassured about selling to a buyer who’s using a conventional home loan.
Choosing between a VA loan and a conventional loan is important and will have a long-term impact on your financial security. To better understand your options during every step of the homebuying process, talk to a real estate agent who can connect you with a loan officer or mortgage broker to help you choose the mortgage option that’s right for you.